There will be few tears shed by Money Marketing readers as the FSA makes way for the Financial Conduct Authority next week.
The regulatory body created by the previous Labour government leaves behind a long list of shame in terms of the big misselling scandals it did not spot and of course its failures in the run-up to the credit crisis.
But rather than dwell on the past, we must ask whether the new FCA has learnt from it.
In their introduction to the FCA’s business plan, published this week, chairman designate John Griffith-Jones and chief executive Martin Wheatley say they want to create an “environment supportive of good conduct” but where the incentives and opportunities for bad behaviour are low and penalties high.
Few readers, saddled over the past few years with the huge Financial Services Compensation Scheme costs associated with failed firms and failed regulation, will disagree with the desire to get tough on dodgy practices.
If employed thoughtfully, new powers to ban products on a temporary basis could help stop some of the scandals we have seen, although it will require the right minds to spot the right problems.
The FCA’s stated desire to create a supportive environment for good firms should be treated with more caution. At the start of the RDR we were promised regulatory incentives to encourage good behaviour but they have not appeared.
Instead, decent firms have been subject to huge regulatory costs which are inevitably passed on to their clients.
Estimates based on the FCA’s initial budget figures suggest the advice sector, including investment, GI and mortgages, could see a 30 per cent increase in fees. This is not the start we were looking for.
The FCA’s paper on fees, due next month, will give a better picture on costs, for example how this increase will be spread across different advisers and whether the minimum fee for small firms will rise. But the direction of travel does not appear to be a pleasant one.
With adviser numbers falling around 20 per cent year-on-year after the introduction of the RDR, we are left with a smaller pool of firms paying more.
When quizzed by Money Marketing over costs last week, Wheatley indicated they were inevitably going up to pay for the FCA’s new powers and responsibilities.
Whilst the regulator regularly opines over the damage caused by high charges, there is rarely the recognition that its costs contribute, sometimes significantly, to the product, service and advice charges paid by investors.
In a speech last year, Martin Wheatley attacked fund groups for failing to properly compete on charges and hoped the RDR world of increased transparency would drive down fees across advice and asset management.
It is too early to be sure but the outlook for lower charges does not look good. The direction of travel around the issue of rebates indicates that policymakers are more than willing to sacrifice lower charges in the interests of clean and shiny transparency (okay, so I’ve simplified the issue a bit!).
Inexplicably, HM Revenue & Customs is unable to provide us with estimates of the tax take associated with the move to tax rebates announced this week. It says a great deal about the thinking behind the decision that the impact on investors’ pockets was not readily available (and still isn’t).
The Government’s rush to bring in the new tax regime for rebates in two weeks, rather than next April as many were predicting and without concern for the logistical nightmare it will cause firms, is also revealing.
We’ve written a fair bit about the FSA’s attitude to its own costs over the past few months. Whether it is the failure to fix the FSCS broken model (well, actually make it worse), the fall out of Arch cru, agreeing with the Treasury’s move to swipe fine revenues or transferring FSA pension costs onto FCA regulated firms the same theme runs throughout. In each case there appears no recognition of the fact that regulatory costs are, in the end, paid for by the investor and should be justified and managed in the same way as any other tax.
As advisers receive another big FSCS bill in the post and prepare for the expected hike in regulatory costs, plenty will take issue with the FCA chiefs’ view that they have created an “environment supportive of good conduct”.
With the RDR now in place, at a cost of up to £2.6bn over the first five years, and with nearly 10,000 advisers leaving, it is a valid question to ask how and why the costs of supervising a slimmed-down, better qualified advice sector can continue to rise?
Maybe a positive aspect of the RDR’s introduction will be that transparent charging shines a spotlight on the impact of the regulator’s costs on the end investor and allow a proper debate about the true cost and value of regulation to the people who matter.
Paul McMillan is group editor at Money Marketing – follow him on twitter here